Friday, January 03, 2014

6 things SaaS founders should keep in mind in 2014

First of all, a Happy New Year to all readers of this blog. I hope you've had a great start into the new year, and I wish you a happy, healthy and prosperous (and of course SaaSy) 2014.

I've done a bit of reflection on what I've learned in the last couple of months. Here are six things that I think SaaS founders should keep in mind in 2014. This is obviously not meant as a definite or comprehensive list by any means. Rather, it's a synopsis of some of the things that keep me up at night these days.

1) Have the right mix of paranoia and patience

In the spirit of Andy Grove you need to be paranoid about becoming and staying the #1 player in your market. For a variety of reasons, most SaaS markets have "winner takes most" characteristics, so you have to do everything you can to dominate your market. But since we're still in the early days of Cloud adoption and since it usually takes 5-10 years to build a large SaaS company, you also need lots of patience. Gail Goodman of Constant Contact reminded me of that in this excellent talk.

2) Work on your weaknesses until they become your strengths
At the outset, almost every SaaS founder team that we talk to is either very strong on the product/tech side or on the sales/marketing side, but rarely on both sides. It's like a team DNA, and it's hard for a product-driven team to become excellent at sales and vice versa. At the same time, you have to be great at both product/tech and sales/marketing in order to succeed, so you should do everything you can to work on your weak side. This usually means a combination of a) learning really fast and going out of your comfort zone and b) hiring senior people with complementary skills and experiences. I'm not saying that you shouldn't leverage your strengths, but I know you're going to do that anyway. :) Doing what you love to do and what you're good at is comparably easy. Fixing your weaknesses is the tougher part.

3) Have a plan for 2014

Become clear on what you want to achieve in 2014 and what this means for your product roadmap, your marketing plan and your financial plan. Define company-wide OKRs as well as quarterly OKRs for each employee. It sounds like a no-brainer, but my guess is that most startups will benefit from going through a more structured OKR exercise. More about this in my recent post about OKRs.

If you don't offer your customers a fantastic experience on smartphones and tablets (which usually means native apps that leverage the unique capabilities of the device or the mobile usage scenario) you're at risk of getting disrupted by a mobile-first startup, faster than you can disrupt the incumbents of your industry.

5) Don't optimize for the edge cases

One thing I've noticed is that many startup founders are trying too hard to make everyone happy, which leads them to optimize pricing, sales tactics and maybe even product design for a small vocal minority of users. When I discuss e.g. lifecycle email marketing and pricing with SaaS founders I like to say:

"If no one is complaining about your prices, you're most likely too cheap"
"If no one is calling your emails 'spam', maybe you're not sending enough emails"

Similarly, if one user requests a new feature or a change in the product that's no reason to do it, unless you think it makes sense for a large part of your target group.

The temptation to please every user is understandable but it doesn't mean it's the right thing to do. The pricing expectation of your users, for example, will probably follow some kind of bell curve. If you optimize for users on the far edges you're leaving a lot of money on the table in the much bigger middle area of the curve.

6) Raise money when you can, not when you need it

It's a pretty good time for SaaS startups to raise money. If you have the possibility to raise a meaningful amount of money at a good valuation, you should seriously consider it even if you don't necessarily need the money right away. First of all, it's usually unclear what "need" really means. Enough to get to break even? Enough to get to the next round of funding? Enough to win the market? More cash almost always means de-risking and an opportunity to accelerate. I venture to say that if you don't know what to do with an additional couple of million dollars that shows a lack of imagination. Secondly, I don't want to send a "R.I.P. Good Times" message, but currently the times are pretty good and no one knows what will happen in the next one or two years. Thirdly, just because you raise money doesn't mean you have to spend it imprudently, and most SaaS founders who I know are not at risk of failing due to premature scaling because frugality is part of their DNA.

What do you think about these six themes? Which additional ones do you think SaaS founders should pay attention to in 2014?

8 comments:

Thanks for writing this up. Enjoyed reading it. But mobile doesn't make always sense. I'm working on VersionEye (https://www.versioneye.com) and my targeting audience are software developers. Nobody is writing source code on mobile phones or tablets. That's why I don't feel the pain for mobile first. But it would be a nice to have feature.

Christoph, great post. Just a thought on the weaknesses vs strengths. Did any great leader really become a great leader because he worked on his weaknesses? Is it not rather that they focused on their strengths and hired complementary skill sets? You just have to recognize it early enough...

Christian, thank you for your comment and sorry about the late reaction. I think great startup CEOs are usually really good at wearing many different hats – out of necessity. It doesn't mean that you shouldn't hire people with complementary skills – I absolutely think you should do that. But in many cases I think one doesn't exclude the other. For example, if you're a product guy you may still have to do the first sales yourself, pitch to investors etc., before you're able to attract and pay e.g. a VP of Sales.

"If no one is complaining about your prices, you're most likely too cheap""If no one is calling your emails 'spam', maybe you're not sending enough emails"

very true!

7) for enterprise SaaS: partner up with thought leaders / innovators in your target group and deeply include them in your product development. You not only will get great feedback and speed up iterations, but also make them evangelize your product.

For us it was a necessity, since we didn't know anything about the business of our customers. For other founders it might be good advice to improve product/market fit.